Refinancing Your Home – Part 1

My fabulous husband and I are in the middle of refinancing our home. He has spent countless hours researching and working on finding us the best deal and I asked him if he would share his knowledge with our readers. He agreed! I pleased to introduce Part 1 in a four part series for this article. This is his first official blog post! I am so excited to share his expertise with you!

PART I

Refinancing Our Home

With the Federal Funds Rate remaining at historic all-time lows (0% – 0.25%) resulting in very attractive mortgage loan rates, we wanted to take advantage of these rates. With our current rate at 5.875%, we wanted to secure a lower rate, which would result in thousands of dollars in savings over 30 year term.

Shopping for Rates

As we “shopped” for interest rates, we quickly found ourselves gravitating back to a mortgage broker we used when we refinanced our first home about 10 years ago. The mortgage broker is with Guardian Savings Bank (GSB), which offers refinancing with a very small refinancing fee ($380). Typically, GSB offers competitive rates; however they may be slightly higher than others, which have much higher closing costs.

However in my efforts to “shop for rates” via online services, I was pleasantly surprised to learn GSB was offering a 5% rate for a 30yr mortgage, which was the same rate that I consistently found elsewhere; however GSB offered much lower closing costs.

Rates and Terms

With being just a little over 6 yrs into our 30yr mortgage and have already paid $74k in interest, I wanted to see what savings the lower rates would provide. Furthermore, I knew I could get a lower rate by reducing the term of the loan. I got quotes for a 20yr and 15yr mortgage, 5.0% and 4.5% respectively. In crunching the numbers and looking at our family budget, there were a few scenarios we could explore:

Scenario 1 – Do Nothing: The easy thing to do is to do nothing and continue paying our 30yr mortgage for the next 24 years at 5.875%. Total Interest Paid: Over $236K

Scenario 2 – Lower Monthly Mortgage Payment: Simply refinance the outstanding balance for 30yrs at 5.0% resulting in a lower monthly mortgage payment by $216; however in doing so, we would pay another $177k in interest in addition to the $74k we’ve already paid. Total Interest Paid: Over $251k

Scenario 3 – Save Interest Paid by Going to a 20yr Mortgage: By refinancing to a 20yr loan at the same rate (5.0%) versus a 30yr loan, we would have a slightly higher monthly payment by $18; however by doing so, we would save $51k in interest compared to our original 30yr loan. Total Interest Paid: $185k

Scenario 4 –Save Interest Paid by Increasing Our Monthly Mortgage Payment: By refinancing to a 15yr loan to get the lower rate of 4.5%, which would result in a higher monthly payment by $200; however by doing so, we would save $91k in interest compared to our original 30yr loan. Total Interest Paid: $145k

Decision Time

Now that I’d crunched the numbers it was time to make a decision on the best option for my family as we looked at the impact of each scenario to our monthly budget. Obviously, we wanted to save ourselves as much as possible by reducing the amount of interest paid to a lender while not overextending our resources. Overall going to a 15yr loan at 4.5% was the most advantageous providing the greatest benefit; however in doing so, it increased our annual mortgage expense by $2,400. Now the question is, “Can our budget withstand the additional $2,400 expense per year?

Guardian Savings Bank did not compensate us in any way for this post. This like all posts are 100% our opinion.